The truth about budgeting is that it’s a highly worthwhile exercise for gaining control of your personal finances. Unfortunately, people really don’t like using a budget to track their spending.
“It’s painful, and everybody hates it,” says Julia Chung, a financial planner who appears in the newest episode of our Stress Test podcast on crisis-proofing your finances. “Like, literally, everybody.”
As Ms. Chung explains in the podcast, her preferred alternative is to set up a few savings accounts and then start regular automatic contributions to them from your chequing account. You could have an account for monthly bills and another for annual bills like vehicle insurance and a family vacation and still another to use as a source of cash in an emergency situation.
I have more than a dozen savings accounts at various bank, each labelled for a specific purpose. The typical alternative bank lets you nickname your accounts, which is a big help in keeping track of your finances. I have accounts where I gradually put away money for insurance – term life premiums plus car and home – for vacations and home improvement, our next car down payment and, of course, an emergency fund. All the accounts are held at online banks with rates of at least 1.7 per cent.
With money saved for multiple purposes, you’re as ready as anyone can be for a crisis. And when the usual bills for expenses like car insurance or property taxes come in, you’re ready for that too.
Up next for Stress Test: Getting started as an investor. Available June 30.
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Rob’s personal finance reading list…
Waiting for a flight refund?
Airline industry execs defend their policy of offering vouchers, not cash refunds, to customers whose flights were cancelled as a result of the pandemic. I have heard from more than a few readers angry about this.
Good news for renters
Average rents in Toronto have been falling steadily since the pandemic began. Given the damage done to the economy by COVID-19, it’s likely that rents are dropping in other markets, too. A big help to the young adults who have been spending a huge amount of their paycheques on rent alone.
Diversity in the wealth management business
A website for advisers interviews finance professionals of colour about their experiences of racism. “I’ll tell you about some of the hypocrisy I see,” Christopher Dewdney, adviser and principal at Dewdney & Co., says in Part One. In Part Two, Jackie Porter of Carte Wealth Management talks about how firms are missing an opportunity if they don’t recruit advisers who reflect how Canada looks.
Find a better bank
Some heavy lifting here by the HowToSaveMoney website in providing comparative information on chequing accounts at the big banks and their online competitors. Do me a solid and check your account against what other banks offer. I’m pretty sure a lot of people are getting hosed.
Ask Rob
Q: A young friend with no investing experience (24-year old business graduate from India, currently selling cars at a dealership) wants to get into investing and asked me about day trading. He knows little about the markets, and I’m afraid he will be quickly be separated from his hard-earned money. What would you recommend he read and do to prepare himself to invest successfully? Thanks for any tips.”
A: Day trading is hot right now thanks to the massive stock market rebound from the lows of earlier this year. Everyone thinks they’re a star trader. Don’t let your friend get sucked in – investing is a lot harder that it has looked in the past few months. My best suggestion for your friend is to open an account at a robo-adviser and start making regular contributions. He can build up his knowledge of investing gradually and decide in the future if any changes are needed in his approach. Meantime, the robo-adviser will get him into the market in a cost-effective, well-diversified way.
Do you have a question for me? Send it my way. Sorry I can’t answer every one personally. Questions and answers are edited for length and clarity.
Today’s financial tool
Find out what COVID-19 benefits you’re eligible for using the Financial Relief Navigator from Prosper Canada, a charity that helps Canadians living in poverty. What’s unique about this tool is that you can specify if you’re having trouble paying bills, if your income has dropped or if you were on social assistance or not working before the pandemic. You can also search by province.
Tweet of the week
Fifteen important personal finance topics for Canadians, with a key takeaway for each.
In case you missed these Globe and Mail personal finance-related stories
- Canadians working from home permanently should expect salary changes, experts say
- Income splitting comes to the fore during COVID-19 era
- Some insurers are reducing premiums after COVID-19 shut down physiotherapy, dental offices
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Rob Carrick